Neumann Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Neumann’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Neumann’s suppliers are demanding payment for goods acquired within 30 days of the invoice date, but Neumann’s customers are slow in paying for their purchases (60-90 days).
As a result, Neumann has a cash flow problem.
Neumann needs $160,000 to cover next Friday’s payroll. Its balance of outstanding totals $800,000. To alleviate this cash crunch, the company sells $170,000 of its receivables. Record the entry that Neumann would make. (Assume a 2% service charge.)
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